<PAGE>

                       U.S. SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C.  20549
                                     FORM 10-QSB

(Mark One)

  X       Quarterly Report Under Section 13 or 15(d) of The Securities Exchange
-----     Act of 1934

For the quarterly period ended        December 31, 1997
                               -------------------------------

          Transaction Report Under Section 13 or 15(d) of the Securities
-----     Exchange Act

For the transition period from                      to
                               --------------------    -------------------------

Commission File Number    0-4169
                       ------------

                                         SYS
--------------------------------------------------------------------------------
          (Exact Name of Small Business Issuer as Specified in Its Charter)

            California                                        95-2467354
------------------------------------                    ------------------------
   (State or Other Jurisdiction of                         (I.R.S. Employer
  Incorporation or Organization)                           Identification No.)

            6363 Greenwich Drive, Suite 200, San Diego, California  92122
--------------------------------------------------------------------------------
                       (Address of Principal Executive Offices)

                                    (619) 587-0484
--------------------------------------------------------------------------------
                   (Issuer's Telephone Number, Including Area Code)


--------------------------------------------------------------------------------
           (Former Name, Former Address and Former Fiscal Year, if Changed
                                  Since Last Report)

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

Yes   X      No
    -----       -----


     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,144,870 SHARES OF COMMON
STOCK, WITHOUT PAR VALUE, AS OF DECEMBER 31, 1997.

     Transitional Small Business Disclosure Format (check one):

Yes   X      No
    -----       -----

<PAGE>

                                 TABLE OF CONTENTS


                                                                           Page
PART I - FINANCIAL INFORMATION                                            Number


     Item 1.   Financial Statements
               Condensed Balance Sheets (unaudited)
                    December 31, 1997 and September 30, 1997. . . . . . . . . .3
               Condensed Statements of Operations (unaudited)
                    Three Months and Six Months Ended December 31, 1997
                    and Three Months and Six Months Ended December 31, 1996 . .4
               Condensed Statements of Cash Flows (unaudited)
                    Six Months Ended December 31, 1997
                    and Six Months Ended December 31, 1996. . . . . . . . . . .5
               Notes to Condensed Financial Statements (unaudited). . . . . . .6

     Item 2.   Management's Discussion and Analysis of Financial Condition
               and Results of Operations

                    Description of Business. . . . . . . . . . . . . . .  . . .9
                    Results of Operations. . . . . . . . . . . . . . .  . . . 10
                    Liquidity and Capital Resources . . . . . . . . . . . . . 11


PART II - OTHER INFORMATION


     Item 1.   Legal Proceedings . . . . . . . . . . . . . . .  . . . . . . . 12

     Item 2.   Changes in Securities. . . . . . . . . . . . . . . . . . . . . 12

     Item 3.   Defaults Upon Senior Securities. . . . . . . . . . . . . . . . 12

     Item 4.   Submission of Matters to a Vote of Security Holders. . . . . . 12

     Item 5.   Other Information. . . . . . . . . . . . . . . . . . . . . . . 13

     Item 6.   Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 14

<PAGE>

                                        PART I
                                FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS
                                         SYS
                               CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                  12/31/97         9/30/97
                                                -----------      -----------
                                                (Unaudited)      (Unaudited)
<S>                                           <C>              <C>
ASSETS
Current assets:
   Cash                                        $      16,000    $      18,000
   Contract receivables, net                       1,333,000        1,317,000
   Other current assets                              101,000          266,000
                                              ---------------  ---------------
      Total current assets                     $   1,450,000    $   1,601,000

Equipment, furniture and fixtures,
   at cost, less accumulated
   depreciation and amortization                     152,000          151,000
Other assets                                         124,000           15,000
                                              ---------------  ---------------
                                               $   1,726,000    $   1,767,000
                                              ---------------  ---------------
                                              ---------------  ---------------
LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities:
   Note payable to bank                        $     257,000    $     297,000
   Accounts payable                                  175,000          293,000
   Accrued payroll and related taxes                 234,000          174,000
   Other accrued liabilities                          12,000           56,000
   Current portion of other long-term debt            46,000          101,000
   Income taxes payable                               23,000            2,000
                                              ---------------  ---------------
      Total current liabilities                $     747,000    $     923,000

Other long-term debt                                 176,000          112,000

Stockholders' equity:
   Preferred stock                                    55,000           55,000
   Series B preference stock                          73,000           76,000
   Common stock                                      449,000          446,000
   Retained earnings                                 226,000          155,000
                                              ---------------  ---------------
      Total stockholders' equity               $     803,000    $     732,000
                                              ---------------  ---------------
                                               $   1,726,000    $   1,767,000
                                              ---------------  ---------------
                                              ---------------  ---------------
</TABLE>


                                          1
<PAGE>

                                         SYS
                          CONDENSED STATEMENT OF OPERATIONS
                                     (Unaudited)
<TABLE>
<CAPTION>
                                                   Three months ended                    Six months ended
                                                      December 31                         December 31
                                            -------------------------------     -------------------------------
                                                1997              1996              1997              1996
                                            -------------     -------------     -------------     -------------
<S>                                         <C>               <C>               <C>               <C>
Contract revenues                            $1,990,000        $1,760,000        $4,024,000        $3,316,000
Costs and expenses:
   Contract costs                            $1,697,000        $1,482,000        $3,420,000        $2,772,000
   General and administrative                   202,000           196,000           386,000           377,000
                                            -------------     -------------     -------------     -------------
                                             $1,899,000        $1,678,000        $3,806,000        $3,149,000
                                            -------------     -------------     -------------     -------------
Income from operations                       $   91,000        $   82,000        $  218,000        $  167,000

Other expenses:
   Interest                                       6,000            18,000            14,000            27,000
                                            -------------     -------------     -------------     -------------
                                                  6,000            18,000            14,000            27,000
                                            -------------     -------------     -------------     -------------
Income (loss) before income taxes            $   85,000        $   64,000        $  204,000        $  140,000

Provision for income taxes                       13,000                 0            13,000                 0
                                            -------------     -------------     -------------     -------------
Net income (loss)                                72,000            64,000           191,000           140,000

Dividends on preferred shares                     1,000             1,000             1,000             1,000
                                            -------------     -------------     -------------     -------------
Net income (loss) applicable to
   common and common
   equivalent shares                         $   71,000        $   63,000        $  190,000        $  139,000

Retained earnings at beginning
   of period                                    155,000          (111,000)           36,000          (187,000)
                                            -------------     -------------     -------------     -------------

Retained earnings at end of period           $  226,000        $  (48,000)       $  226,000        $  (48,000)
                                            -------------     -------------     -------------     -------------
                                            -------------     -------------     -------------     -------------
Earning (losses) per common
   and common equivalent shares              $     0.02        $     0.02        $     0.06        $     0.05
                                            -------------     -------------     -------------     -------------
                                            -------------     -------------     -------------     -------------
Weighted average number of
   common and common
   equivalent shares                          3,260,000         2,921,000         3,259,000         2,874,000
                                            -------------     -------------     -------------     -------------
                                            -------------     -------------     -------------     -------------
</TABLE>
 

                                          2
<PAGE>

                                         SYS
                          CONDENSED STATEMENT OF CASH FLOWS
                                     (Unaudited)

<TABLE>
<CAPTION>
 
                                                               Six months ended
                                                                  December 31
                                                        --------------------------------
                                                             1997             1996
                                                        ---------------  ---------------
<S>                                                     <C>              <C>
Operating activities:
Net income (loss)                                        $    191,000     $    140,000
Adjustments to reconcile net income to net cash
   provided by (used for) operating activities:
      Depreciation and amortization                            25,000           23,000
      Provision for doubtful accounts                               0                0
      Changes in operating assets and liabilities:
         Contract receivables                                (290,000)        (576,000)
         Other current assets and other assets                  5,000          (40,000)
         Accounts payable                                    (287,000)         187,000
         Accrued payroll and related taxes                     (4,000)         (50,000)
         Income taxes payable                                  23,000                0
         Other accrued liabilities                            (53,000)         (24,000)

                                                        ---------------  ---------------
Net cash provided by (used for) operating activities     $   (390,000)    $   (340,000)

Investing activities:
Acquisition of furniture and equipment                   $    (29,000)    $    (11,000)
(Increase) decrease in other assets                                 0                0
                                                        ---------------  ---------------

Net cash provided by (used in) investing activities      $    (29,000)    $    (11,000)
                                                        ---------------  ---------------
Financing activities:
   Proceeds from note payable to bank                       4,355,000        2,975,000
   Payments on note payable to bank                        (4,098,000)      (2,718,000)
   Other notes payable and capital lease obligations          (16,000)          74,000
   Payments of preferred stock dividends                            0                0
   Proceeds from issuance of common stock                           0            5,000
                                                        ---------------  ---------------

Net cash provided by (used in) financing activities      $    241,000     $    336,000
                                                        ---------------  ---------------
Increase (decrease) in cash                              $   (178,000)    $    (15,000)
Cash at beginning of period                                   194,000           25,000
                                                        ---------------  ---------------

Cash at end of period                                    $     16,000     $     10,000
                                                        ---------------  ---------------
                                                        ---------------  ---------------
</TABLE>
 
                                          3
<PAGE>

                       NOTES TO CONDENSED FINANCIAL STATEMENTS


(1)    In the opinion of the Registrant, the unaudited financial information in
this report reflects all adjustments, consisting only of normal recurring
accruals, which are considered necessary to a fair presentation of the results
of the periods shown.  Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to SEC
regulations.  It is suggested that these financial statements be read in
conjunction with the audited financial statements included in the Registrant's
Report on Form 10-KSB for the fiscal year ended June 30, 1997.

(2)    Income per common share is computed by dividing the net income
applicable to common stock for the year by the weighted average number of common
shares outstanding as adjusted for the  dilutive effects of  the assumed
conversion of the 4% preferred stock (a common stock equivalent) and the
exercise of stock options.  The effects of the assumed conversion of the 9%
preference stock were either immaterial or antidilutive.

(3)    The results of operations for the quarter and six-month period ended
December 31, 1997, are not necessarily indicative of the results to be expected
for the full year.

ITEM 1a.    FACTORS WHICH MAY AFFECT FUTURE RESULTS

     Information contained in this Form 10-QSB should be studied carefully by
any potential investor while considering the following risk factors to the
Company.

     1.   LACK OF BUSINESS DIVERSIFICATION  Essentially all the Company's
business at the present time is with the U.S. Navy.  Even though the level of
business with its customers is growing and the Company has negotiated
multiple-year contracts, there is no certainty that budget changes in Congress
or the Defense Department will not seriously affect the Company.

     2.   DEPENDENCE ON KEY PERSONNEL  The Company has a few key management,
project and technical personnel that are intimately involved in their functions
and have day to day relationships with critical customers.  The Company is not
able to afford extra standby staff. As a result, at its current size, it would
be affected in an uncertain way if any of these personnel were to be lost to the
Company.

     3.   COMPETITION  The Company has many competitors who vie for the same
customers as SYS.  They are competent, experienced and continuously working to
take work projects away from the Company.

     4.   PRIOR OPERATING HISTORY AND LACK OF TIMELY SEC FILINGS  The Company is
current on its SEC filings and has been throughout the period covered by this
10-QSB.

     5.   LIMITED ASSETS OF THE COMPANY  The Company has very limited assets
upon which to rely on for adjusting to business variations and for growing new
businesses.  While the Company is likely to look for new funding to assist in
the acquisition of other profitable businesses, it is uncertain whether such
funds will be available.  While the Company's management believes that its
financial policies


                                          4
<PAGE>

have been prudent, the Company's substantial reliance on a short term bank loan
with Scripps Bank and other short-term accruals imposes certain limitations on
the Company.  If the Company is to grow and expand its operations, the Company
will need to raise significant amounts of additional capital.  There can be no
assurance that the Company will be successful in raising a sufficient amount of
additional capital, or if it is successful, that the Company will be able to
raise capital on reasonable terms in light of the Company's current
circumstances.  In the event that the Company raises additional capital, the
Company's existing stockholders may incur substantial and immediate dilution.

     6.   LIMITED MARKET FOR COMMON STOCK.  The Company's stock is traded (OTC)
on the Electronic Bulletin Board.  Trading for the stock is sporadic and at
present there is a limited market for the Company's Common Stock.  There can be
no assurance that a market will in fact develop.  Even if a market does develop,
it may not be sustained.

     7.   POSSIBLE RULE 144 STOCK SALES.  A total of 2,156,104 shares of the
Company's outstanding Common Stock are "restricted securities" and may be sold
only in compliance with Rule 144 adopted under the Securities Act of 1933 or
other applicable exemptions from registration.  Rule 144 provides that a person
holding restricted securities for a period of one year may thereafter sell, in
brokerage transactions, an amount not exceeding in any three month period the
greater of either (i) 1% of the Company's outstanding Common Stock, or (ii) the
average weekly trading volume during a period of four calendar weeks immediately
preceding any sale.  Persons who are not affiliated with the Company and who
have held their restricted securities for at least two years are not subject to
the volume limitation.  Possible or actual sales of the Company's Common Stock
by present shareholders under Rule 144 may have a depressive effect on the price
of the Company's Common Stock in any market which may develop.

     8.   RISKS OF LOW PRICED STOCKS.  Trading in the Company's stock is
limited.  Consequently, a shareholder may find it more difficult to dispose of,
or to obtain, accurate quotations as to the price of, the Company's securities.
In the absence of a security being quoted on NASDAQ, trading in the Common Stock
is covered by Rule 3a51-1 promulgated under the Securities Exchange Act of 1934
for non-NASDAQ and non-exchange listed securities.
     Under such rules, broker/dealers who recommend such securities to persons
other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000
jointly with their spouse) must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a transaction
prior to sale.  Securities are also exempt from this rule if the market price is
at least $5.00 per share, or, for warrants, if the warrants have an exercise
price of at least $5.00 per share.  The Securities Enforcement and Penny Stock
Reform Act of 1990 requires additional disclosure related to the market for
penny stocks and for trades in any penny stock defined as a penny stock.
     The Commission has recently adopted regulations under such Act which define
a penny stock to be any NASDAQ or non-NASDAQ equity security that has a market
price or exercise price of less than $5.00 per share and allow for the
enforcement against violators of the proposed rules.
     In addition, unless exempt, the rules require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule prepared by the
Commission explaining important concepts involving a penny stock market, the
nature of such market, terms used in such market, the broker/dealer's duties to
the customer, a toll-free telephone number for inquiries about the
broker/dealer's disciplinary history, and the customer's rights and remedies in
case of fraud or abuse


                                          5
<PAGE>

in the sale.
     Disclosure also must be made about commissions payable to both the
broker/dealer and the registered representative, current quotations for the
securities and, if the broker/dealer is the sole market maker, the broker/dealer
must disclose this fact and its control over the market.
     Monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks.  While many NASDAQ stocks are covered by the proposed definition of
penny stock, transactions in NASDAQ stock are exempt from all but the sole
market-maker provision for (i) issuers $2,000,000 in tangible assets ($5,000,000
if the issuer has not been in continuous operation for three years), (ii)
transactions in which the customer is an institutional accredited investor and
(iii) transactions that are not recommended by the broker/dealer.  In addition,
transactions in a NASDAQ security directly with the NASDAQ market maker for such
securities, are subject only to the sole market-maker disclosure, and the
disclosure with regard to commissions to be paid to the broker/dealer and the
registered representatives.
     Finally, all NASDAQ securities are exempt if NASDAQ raised its requirements
for continued listing so that any issuer with less than $2,000,000 in net
tangible assets or stockholder's equity would be subject to delisting.  These
criteria are more stringent than the proposed increase in NASDAQ'S maintenance
requirements.  The Company's securities are subject to the above rules on penny
stocks and the market liquidity for the Company's securities could be severely
affected by limiting the ability of broker/dealers to sell the Company's
securities.




                                          6
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

DESCRIPTION OF BUSINESS

       The Company provides management and technical services in systems
planning, management and analysis, systems engineering, naval architecture,
marine engineering, ordnance engineering, logistics analysis and engineering,
operations analysis, design development, reliability engineering and analysis,
hazardous materials reduction studies, computer systems analysis, office
automation, information management systems and related support services.  The
Company also provides hardware integration and fabrication.

       The Company currently has three principle contracts with the U. S. Navy.
These prime contracts are Underway Replenishment (UNREP); Management, Planning
and Administrative (MPA); and Naval Architecture and Marine Engineering (NAME).

       The Company was successful in winning the recompete of the Underway
Replenishment (UNREP) Program which provides in-service engineering support to
the U. S. Navy Fleet.  The new contract became effective on December 4, 1997 and
consists of a base year and three one year options.  The Company is continuing
its support for the research and development project to design and build a full
size ship mock-up of a missile rearming system.  An AEGIS Cruiser Vertical
Launch Test System was fitted with a full scale mock-up capable of demonstrating
the rearming and strikedown system feasibility for replenishing the Navy
Standard Missile and the shipboard Tomahawk missile system while underway at
sea.  This project will continue to refine the detail design.  Shipboard
technical assistance continues to expand and provides the basis for continued
business confidence in the current fiscal year.

       The Management, Planning and Administrative (MPA) Program had its third
of four option years exercised on February 1, 1998.  This Program supports the
U.S. Navy's Port Hueneme Division, Naval Surface Warfare Center.  The Statement
of Work provides a broad and flexible scope of work which allows a wide range of
tasking.  SYS has developed work competencies in such areas as Management
Consulting, Information Services, Human Resource Services, Combat Systems
Engineering and Facilities Engineering.  The MPA Program has received customer
recognition for its high standards of excellence and professionalism.  Continued
growth of this Program area is anticipated.

       The Naval Architecture and Marine Engineering (NAME) Program had its
second of four option years exercised on November 25, 1997.  This cost plus
fixed fee contract was issued by the U.S. Navy's Port Hueneme Division, Naval
Surface Warfare Center (PHD NSWC).  The Company's largest customer on this
contract is the Ship Self Defense Department of PHD NSWC.  Along with our
Associate Subcontractor, John J. McMullen Associates, Inc. (JJMA), we provide
extensive support for Ship Self Defense Systems in the areas of weapon systems
installation design, planning and coordination.  The outlook for this contract
is good, but challenging.  We are attempting to expand our customer base in an
environment of decreasing customer budgets.

       The Company was awarded a two year subcontract on August 18, 1997 from
Systems Application and Technologies to continue its support to the Naval Air
Systems Command.  This


                                          7
<PAGE>

support provides environmental engineering and technical services focusing on
the identification and reduction of hazardous material when providing
maintenance to weapons and associated handling and shipping equipment.
Hazardous material reduction support is being expanded to include support for
Foreign Military Sales.

       Washington Operations successfully recompeted a five year subcontract
with their prime contractor, Tracor, on April 24, 1997.  This will allow
continued program management support to the Program Executive Office, Surface
Combatants/AEGIS Program (PEO,SC/AP), PMS400.  The Company provides contract and
other financial reconciliation and closure support for the Japanese AEGIS
Foreign Military Sales cases.  The Company also provides other financial
management support including case closure processing support to PMS400.

       On September 5, 1997, the Company began to provide UNREP-type services
to the Republic of Korea Navy through a subcontract with Lake Shore, Inc.  This
program will run through most of this fiscal year.

       The Company's sales of Sun computers and equipment continued at a
reduced level.  The Company is also attempting to apply the skills acquired in
the Defense arena into the commercial sector.  The Company recently received
notification from the State of California that it has been approved as a
supplier of services to the State.


RESULTS OF OPERATIONS

       The Company revenues for this quarter are approximately 13% more than
those in the same quarter in FY 1997.  For the first six months of FY 1998,
revenues increased by about 21% over the prior year's same period.  The
increased revenue is primarily due to additional revenues on the UNREP, MPA and
NAME contracts.  Revenues in the second quarter of FY 1998 were about 2% lower
than in the first quarter of the year.  This was mainly due to slightly lower
revenue on the MPA contract.

       Total contract and general and administrative expenses have consistently
been about 95% of the contract revenue for the three and six month periods ended
December 31, 1997 and 1996.  Interest expense has been lower in fiscal year 1998
due to less borrowing on the Company's line of credit with Scripps Bank.  The
Company has used all available tax loss carry forwards and has therefore
provided for income taxes for the current fiscal year.

       Income from operations has been consistently about 5% of the contract
revenue for the three and six month periods ended December 31, 1997 and 1996.
Net Income for the quarter is $72,000 and for the year to date is $191,000.  For
the same periods in FY 1997, the net income was $64,000 and $140,000,
respectively.  The negotiated contract backlog was approximately $4,186,000 at
the end of the second quarter.

       The outstanding balance on the Company's revolving line of credit with
Scripps Bank decreased to $257,000 at the end of the second quarter of FY 1998.
The balance at the end of the first quarter was $297,000.  At the end of the
second quarter in FY 1997, the note balance was $356,000.


                                          8
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

       The Company had contract receivables (net) of $1,333,000 at the end of
the second quarter of FY 1998.  For the same quarter in FY 1997, the contract
receivables (net) were $1,563,000.  The reason FY 1998 contract receivables are
lower than the prior year is because of more efficient payment processing by
Defense Finance and Accounting Service (DFAS).

       The Company had accounts payable of $175,000 at the end of the second
quarter of FY 1998.  For the same quarter in FY 1997 the accounts payable were
$489,000.  With the efficient processing of payments by DFAS, the Company has
been able to remain current with their accounts payable.

       The Company maintains a $500,000 revolving credit facility with Scripps
Bank which matures on October 15, 1998.  The loan is secured by all the
Company's assets including contract receivables.  Scripps advances funds
requested by the Company of up to 80% of the Company's billed contract
receivables which are less than 90 days old.  Scripps charges an interest rate
of 1.5% over prime.

       Management believes that the Company will have sufficient cash flow from
operations and funds available under the revolving credit agreement with Scripps
Bank to finance its operating and capital requirements through at least the
current fiscal year.

     Several key factors indicating the Company's financial condition include:

<TABLE>
<CAPTION>
                                      December 31, 1997    June 30, 1997
                                      -----------------    -------------
<S>                                   <C>                  <C>
Current ratio                               1.94                1.65
Maximum debt to net worth                   1.15                1.64
Net worth                                 $803,000            $612,000
Net working capital                       $703,000            $574,000
Debt to total assets                        53%                 62%
Book value per common share                 $0.25               $0.20
</TABLE>


       The current ratio is derived by dividing total current assets by total
current liabilities.  Maximum debt to net worth is calculated by dividing total
liabilities (total current liabilities plus other liabilities) by net worth.
Net worth is total stockholders' equity.  Net working capital is total current
assets less total current liabilities.  Debt to total assets is total
liabilities divided by total assets.  Book value per common share is total
stockholders' equity divided by the weighted average number of common and common
equivalent shares.


                                          9
<PAGE>

                             PART II - OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

       On June 14, 1996, the Company filed a Notice of Appeal from the
Judgement and Order on the Jury Verdict of April 3, 1996 regarding the outcome
of the Gray, Cary, Ames & Frye (GCAF) lawsuit.  To obviate the necessity for
bonding the appeal to preclude collection efforts during the appeal, the Company
paid the Judgement on May 9, 1997, reserving its rights to continue the appeal.

       In November 1995, a creditor of Systems Exploration, Inc. (SEI) filed a
breach of contract action against the Company in California Superior Court.
This matter was settled on January 20, 1998.


ITEM 2.   CHANGES IN SECURITIES

       On July 1, 1997, the Company granted the conversion of 2,684 shares of
Series B 9% Cumulative Convertible Callable Non-Voting Preference Stock into
5,368 shares of Common Stock.

       On November 14, 1997, the Company granted the conversion of 3,042 shares
of Series B 9% Cumulative Convertible Callable Non-Voting Preference Stock into
6,084 shares of Common Stock.

       During the year ended June 30, 1997, the Board of Directors authorized
non-qualified stock purchase options of 25,000 Common shares each to outside
directors Paul I. Anderson, Charles H. Werner and Robert D. Mowry, which may be
exercised at $0.31, $0.09 and $0.47 per share, respectively.  Anderson's
Non-Qualified Stock Option Agreement was completed July 31, 1997.  Non-Qualified
Stock Option Agreements for Mowry and Werner are currently being finalized.

       On September 3, 1997, Karen White was hired by the Company.  As part of
her compensation package, she was granted qualified options on 50,000 shares of
the Company's common stock.  The stock option agreement has not been finalized.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES          None


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

       On October 28, 1997, an Action of the Holders of a Majority of the
Shares Outstanding by Written Consent in Lieu of a Meeting of SYS approved an
amendment of Section (a), Fourth Article, of the Articles of Incorporation.
This amendment stated "The number of directors of this corporation shall not be
less than five, nor more than nine, the exact number of which shall be fixed by
a bylaw duly adopted by the shareholders or by the corporation's board of
directors."  A Certificate of Amendment of Articles of Incorporation of SYS was
approved by the Board of Directors and by the required vote of Shareholders and
was filed with the Secretary of State of California on November 7, 1997.


                                          10
<PAGE>

       On January 8, 1998, the Company held its 1997 Annual Meeting of
Shareholders.  There were 3,138,786 shares eligible as of the record date and
2,733,597 shares were represented either in person or by proxy at the meeting.
The following matters were voted on at the meeting:

     (a.)   Proposal to elect the Directors pursuant to management's
nominations.  This proposal was approved with a voice vote.

     (b.)   Proposal to approve the appointment of J.H. Cohn LLP as the
independent certified public accountants for the corporation for its 1998 fiscal
year.  This proposal was approved with a voice vote.

     (c.)   Proposal to increase number of authorized common shares to 12.0
million.  This proposal was approved with a voice vote.  Filing of an amendment
to Article Fourth of the Company's Articles of Incorporation is now pending with
the Secretary of State of California.

     (d.)   Proposal to amend the SYS 1997 Incentive Stock Option and
Restricted Stock Plan increasing the number of common shares allocated for
non-employee directors and consultants to 350,000 shares.

     (e.)   Proposal to further amend the SYS 1997 Incentive Stock Option and
Restricted Stock Plan increasing the number of common shares allocated for
employees to 500,000 shares.


ITEM 5.     OTHER INFORMATION

       Effective August 1, 1997, Mr Robert D. Mowry was elected as Chairman of
the Board and Chief Executive Officer of the Company.

       Mr. Mowry is also Chief Executive Officer of UniPrise Systems, Inc.
(UniPrise).  Big Canyon Investments, Inc. (BCI), formerly owned by Mr. Mowry,
and now a subsidiary of UniPrise, is the first secured debtor of the accounts
receivable and claims of an unrelated third party company.  The Company has an
agreement with BCI to support the collection efforts on a cost reimbursement
basis and two Company employees have been assisting BCI in the collection of
these receivables and claims and in the closing out of the contracts.  UniPrise
currently owes the Company approximately $112,000 for the use of these employees
and other related costs.

       At the Board of Directors meeting on August 20, 1997, Mr. L. Randolph
Knapp was elected to fill the vacant seat on the Board effective as of September
16, 1997.

       At the Board of Directors meeting on September 16, 1997, Mr. Richard W.
Wood was elected as a director of the Company effective on the date the
Company's Articles of Incorporation provide for nine (9) directors.  The
Articles were amended on November 7, 1997.

     On February 4, 1998, the Company entered into a preliminary understanding
for the proposed purchase of the outstanding capital stock of Ameritech
Environmental, Inc. ("AEI") from L. Eugene Fling II (the "Seller").  In
connection with the proposed transaction, Ameritech Engineering, LLC ("AELLC")
has agreed to sell back to AEI certain assets previously purchased from AEI.
While the


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<PAGE>

preliminary understanding is subject to further due diligence and approval by
the Company's Board of Directors, the Company seeks to establish a wholly-owned
subsidiary for the operating of AEI.  AEI is in the business of environmental
testing and consulting.  AEI had no sales or assets in the prior year, however
the Company feels that AEI does possess technical know-how in the environmental
consulting field.

     In the event that the Company completes the acquisition of AEI on the terms
stated in the preliminary understanding, the Company would be obligated to pay
up to $50,000 at closing to the Anthony-Taylor Companies, Inc., and $28,000 to
the Heim Group.  The Company would also seek to employ L. Eugene Fling II under
the terms of an employment and incentive performance agreement under which Fling
will receive: (i) $75,000 at the closing of the transaction; (ii) an aggregate
of $60,000 in two payments made within six months and twelve months following
close of the acquisition; (iii) an employment agreement at a salary of $105,000
annually; (iv) a common stock purchase option, subject to certain vesting
procedures, for the purchase of up to eighty thousand (80,000) shares of the
Company's common stock; and (v) an option for up to two hundred thousand
(200,000) performance-based shares of the Company's common stock.

     The arrangements with AEI and the related understandings are subject to
further review, due diligence, negotiation, and approval by the Company's Board
of Directors.  A copy of the preliminary agreements with Mr. Fling,
Anthony-Taylor Companies, Inc. and the Heim Group are attached to this Form
10-QSB.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

     (a)    Exhibits.
            1.1     Letter dated January 26, 1998 between L. Eugene Fling II and
                    SYS.

            1.2     Letter dated January 27, 1998 between Anthony-Taylor
                    Companies, Inc. and SYS.

            1.3     Letter dated January 23, 1998 between The Heim Group and
                    SYS.

     (b)            Form 8-K.

     Form 8-K was filed on August 1, 1997, reporting that Mr. Robert D. Mowry
had been elected as Chairman of the Board and Chief Executive Officer of the
Company.



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                                      SIGNATURES


       In accordance with the requirements Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




                                                          SYS
                                               ---------------------------
                                                      (Registrant)



Date:    February 11, 1997                     /s/ Robert D. Mowry
      --------------------------               ---------------------------
                                               Robert D. Mowry
                                               Chairman and
                                               Chief Executive Officer


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